A new study analyzing bankruptcy filings found that African-Americans were about twice as likely as whites to wind up in the more difficult and expensive form of bankruptcy filings.
Most debtors who file for bankruptcy file under Chapter 7 of the bankruptcy code. Chapter 7 filings tend to have a higher success rates and are less expensive then the alternative Chapter 13, which requires debtors to dedicate their disposable income to paying back their debts for several years. Under Chapter 7 filings debtors are often relieved of their debts in a matter of months.
The study showed the racial disparity persisted, even when the researches adjusted for income, home ownership, assets and education, suggesting that lawyers were disproportionately steering blacks into a bankruptcy filing that was not as good for them financially.
Robert M. Lawless, a bankruptcy expert and law professor authored the report with Dov Cohen, a psychology professor, both with the University of Illinois and Jean Braucher, a law professor at the University of Arizona.
The entirety of the research findings will be published in The Journal of Empirical Legal Studies later in the year. Lawless doesn’t believe his study uncovered any obvious evidence of discrimination in the bankruptcy process but instead something more challenging to address. I don’t think there is any overt conspiracy,” Professor Lawless said. “But when you have a complex system, these biases can play out and the people within the system don’t see the pattern because nobody is in charge of looking at these big issues.”
Those working in the consumer credit counseling services were not surprised by the findings, noting they show the same underlying issues that created the problems of predatory mortgage lending that exacerbated the housing crisis.
The findings also highlight the need for tough enforcement of anti-discrimination laws across the board. Predatory lending is against the law, but without vigorous enforcement there’s simply nothing to stop ingrained prejudices from driving market conditions and setting up unsustainable and parasitic economies again.
Photo from steakpinball via flickr.